MURATA CO LTD v. TELE-ART LTD

IN THE SUPREME COURT CF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The plaintiff's claim against the defendant is for $119,075.00 being the balance of the price of goods sold and delivered to the defendant between the 14th October 1982 and the 1st February, 1983.

2. The defendant admits this claim but seeks to set-off so much of its counterclaim as will be sufficient to satisfy the amount of the plaintiff's claim. The counterclaim is based on an oral contract between the parties for the sale of "capacity trimmer", it being a term of the contract that the plaintiff "should only supply to the defendant the said capacity trimmer for the period from January to July, 1982 and that the said capacity trimmer should not be supplied to any other manufacturer during the said period." The defendant also averred that it was an express term of the said contract as evidenced by its purchase order MRT-001/82 dated the 21st January, 1982 that the plaintiff should supply such quantities of the said trimmer in accordance with the delivery schedule therein set out for each month over the period February until July, 1982. The defendant claims that in breach of the terms of the contract the plaintiff supplied the capacity trimmer to other manufacturers during the said period; further or alternatively that the plaintiff failed to supply sufficient quantities of the goods on time in March, April and May, by reason of which the defendant suffered loss in that (1) it was unable to meet the delivery schedule of its radio-watches under contracts with its customers, and (2) other local manufacturers, to whom the plaintiff wrongfully supplied the same product, were able to copy the defendant's radio-watch and undercut the defendant by selling it at lower prices, in consequence whereof orders of the defendant's customers were cancelled. The defendant claimed that the loss of profits from orders cancelled by Cheril Shaw Ltd. amounted to US$98,000.00, and from orders cancelled by the Advance Watch Co. Ltd. amounted to US$441,000.00. The defendant thus counter-claims the total of US$539,000.00.

3. In its reply and defence to the counterclaim, the plaintiff denies that it gave any monopoly to the defendant in the supply of the trimmer capacitor as alleged; and with regard to the breach of the term of the contract as to the deliveries of the trimmer capacitor for the months of March, April and May, that it was waived by the defendant by its telex message sent on the 27th May, 1982, in reliance upon which the plaintiff delivered a total of 105,000 pieces of the trimmer capacitor to the defendant in June, 1982, thereby making good all the insufficient deliveries in the preceding three months, the defendant accepting the June delivery without any further complaint. The plaintiff averred that the defendant is estopped from relying on the original delivery schedule for the months of March, April and May. The plaintiff sought to rely on the notes printed on its invoices, particularly the second note, and maintained that the defendant failed to make any complaint immediately upon receipt of the delivery or within a reasonable time thereafter. The plaintiff denies that the defendant Buffered any damage or, if it did, the amount of loss and damage as pleaded is inflated and does not represent the actual loss and damage of the defendant.

4. The amount of the plaintiff's claim being admitted, the defendant opened and adduced evidence first.

5. The plaintiff is a subsidiary of the Murata Manufacturing Co. Ltd. of Kyoto, Japan. One of its directors is Hiroshai Yamase (P.W.2), who is also the general manager of the local company, its sales manager being Sumi Toshikazu (P.W.1). This company specializes in the manufacture of electronic components, one such product being the trimmer capacitor - Ex. D1 - which, according to P.W.2, was developed in Japan in about 1972. It appears in Murata's catalogue for 1981 as the 'E' type, being part number TZ03R121, of the capacitance range 10-120 pico-fara (P^F). The director and general manager of the defendant company, Elmer YUEN (D.W.1) explained that the capacitance represents the electronic value which can be varied within those two values.

6. At the end of 1981, the defendant company invented a radio-watch with earphone, Ex. D9, for which they needed miniaturised components, one being the trimmer capacitor but with a wider range of 9-130 P^F. D.W.1 saw the capacitor at an electronics exhibition in Japan, and the exhibitor Murata (Japan) referred him to their Hong Kong office. P W.1 said that they first received enquiries for this product towards the end of 1981 from one Mr. F. L. Young, a consultant of the defendant company, which obviously led to a meeting of P.W.1 with D.W.1 at the latter's conference room on 18th January, 1982.

7. At about the time of this meeting, D.W.1 received a telex (No. 41 of the agreed bundle) from the plaintiff, conveying the information received from Japan to the effect that their supplyable maximum range of the capacitance value was 9-135 P^F, for which the local unit price quoted was HK$0.90; the standard being 10-120.P^F ,for which the local unit price quoted was HK$0.75. Delivery was offered in early March. The meeting lasted about an hour and a half, during which both sides took notes of the discussion. It is common ground that the price was not agreed, but there was complete divergence of evidence regarding the sole supply of the trimmer capacitor to the defendant for a period of seven months, which D.W.1 maintained was agreed to by Mr. Sumi, while the latter denied that he ever agreed to it.

8. However, it was not disputed that two days later on the 20th, the plaintiff confirmed by telex acceptance of the defendant's price of seventy cents per piece provided that the order was of 250K pieces (K equals one thousand), and confirmed local monthly deliveries as follows: 2K on February 17; 18K on March 3; 40K on March 31; 60K on April 28, and so on.

9. As a result of this, the defendant company gave the plaintiff its first of three orders. This is the purchase order MRT-001/82 mentioned in the pleadings; it is dated the 21st January and is for 250,000 pieces of the trimmer capacitor, the shipping schedule of which is set out as follows:

D.W.1 said that the figures without the letter 'K' also denote the quantity in thousands.

10. D.W.1 said that in early 1982, the defendant company had two overseas customers for its radio-watch. The first was the Advance Watch Co. Ltd. of the United States, with whom they have had business dealings since 1974; the pattern being that the order was discussed usually on the telephone by Jack Shechter of Advance and D.W.1, followed by a written order. D.W.1 produced one such written order dated 15th February, 1982 (Ex. D6 ), confirming their order for 85,000 radio-watches at US$12.00, according to the following delivery schedule: 20K in May, 10K in June, 15K in August, 20K in September and 20K in October.

11. The other customer was the Cheril Shaw Ltd. of Wembley, England who, on the 19th February, 1982 opened an irrevocable letter of credit DC 19552.- Ex. D3, in favour of the defendant company, valid until the 31st August, 1982, for 30,000 L15P LCD watch with built-in radio including earpiece at US$11.50; the first delivery of 10,000 being by the end of June, 10,000 during July and the balance during August. There were six subsequent amendments to the letter of credit with which we are not concerned.

12. According to the plaintiff's invoices, its deliveries of the trimmer capacitor during the first four months were as follows:

It is manifest and is admitted by the plaintiff that it was behind with the shipping schedule for the months of March, April and May; the short deliveries being 5,000, 10,000 and 27,000 pieces respectively. It is not disputed that on the 27th May, the defendant sent a telex (at p. 125 of the agreed bundle), headed "TOP URGENT" to Murata Japan, copied to P.W.1, in the following terms:

"RE OUR P/O NO. MRT-001/82 OF 250K TYPE NO. TZ03R121E TRIMMER CAPACITOR. PLS BE IFMED THAT WE HV PUSHED YR HK OFFICE SC MANY TIMES FOR DELV. THEY FAILED TO CATCH OUR DELV. SCHEDULE. PLS KINDLY PUSH URGENTLY FOR YR PRODUCTION N DELV. AWAITING YR BEST DELV. INFORMATION. THANKS FOR YR KIND CO-OPERATION."

In June, the deliveries by the plaintiff were as follows:

13. D.W.1 said that according to his 19 invoices (Ex. D7) to Advance, his delivery in May was short by 2,500 and in June by 6,000. He said that he received various oral complaints from the customer over the telephone and, at the end of June, Mr. Shechter informed him on the telephone of his intention to cancel all the balance orders if he could not deliver according to schedule. On 23rd July, D.W.1 received Mr. Shechter's letter dated the 15th July, Ex. D8, cancelling the whole order.

14. With regard to Cheril Shaw Ltd., D.W.1 said that according to the 13 shipment invoices (Ex. D4), his shipment in the month of June, 1982 amounted to 11,500 radio-watches, which was an over-shipment of 1,500 and was accepted by the customer vide the second amendment to the letter of credit which mentions an over-shipment of 3,000. In July, the defendant shipped 3,000 watches and adding the 1,500 over-shipped in the previous month, the total delivery in July was 4,500, meaning a short delivery of 5,500. In August, there was a short delivery of 8,500. D.W.1 said that this customer also complained strongly in August and September, threatening to cancel the order balances. Eventually, the order was cancelled by telex dated 22nd September - Ex. D5.

15. The defendant's case is that both these orders were cancelled because of their inability to meet the shipment schedules of their customers, one solely to the breaches of the plaintiff: first, in supplying the same trimmer capacitor to some other local manufacturers, viz., Cycle Time, National Electronics and Collins Industrial, about which D.W.1 came to know sometime in June while attending a customer electronics show in Chicago, thus enabling them to copy and manufacture a similar radio-watch and to sell it cheaper than the defendant; secondly, in failing to keep to the delivery schedule. D.W.1 maintained that these breaches resulted in his loss of profits at the round figure of US$7.00 per watch, based on the cost accounting of the 4th August - Ex. D10 -which indicates the manufacture cost of HK$21.9582, equivalent to US$3.64 per watch at the current exchange rate of HK$6.03.

16. Six issues were settled by consent of the parties as follows:

1) Whether or not there was a sole-supply agreement between the parties on 18th January, 1982;

2) Whether the plaintiff's breach in short deliveries of the trimmer had been waived by the defendant's telex dated 27th May, 1982;

3) Whether the said telex and by accepting a delivery of 105,000 trimmers from the plaintiff in June, 1982 the defendant was estopped from relying on the delivery schedules in the contract;

4) Whether the plaintiff was protected by an exclusion clause under note 2 of their invoices;

5) Whether the plaintiff's breaches under issues (1) and (2) led to the loss of the defendant in the form of customers orders being cancelled; and

6) The quantification of the defendant's loss.

17. In his final address, learned counsel for the plaintiff, Mr. PANG, made a general comment about the conduct of the counterclaim. He said that whereas in the correspondence exchanged between the solicitors before the writ was taken out, there was mention of the sole-supply agreement, there was none about the delay in the supply of the goods. He commented that because the delay in the supply was first raised in October, 1984, one could not help but think that this was "a half-hearted attempt of the defendant to use it as a leverage in the hope of pre-empting his hand so as to force some kind of a settlement by the plaintiff." For the defendant, Mr. LAI agreed that the complaint about the delay was made in October 1984 when the pleadings were amended. He argued that this did not raise the inference that it was not genuine, and said that when he was instructed and saw this omission from the pleadings, he immediately rectified it.

18. It is trite to say that pleadings may be amended at any time of the proceedings and, when amended, the amendment relates back to the date of the pleading which is amended. Whereas the complaint about the delay may not have been mentioned in the pre-trial correspondence, I do not think it prevented the defendant from raising the matter if those representing him thought that it should be pleaded. It seems to me that Mr. PANG chose his words carefully, but I am not persuaded that his comment is justified when all that learned counsel for the defendant did was to amend the pleading in a way that it not only reflected the case on which the defendant sought to rely but to put the issues between the parties clearly, such inferences as learned counsel suggested however being a matter depending upon the nature and quality of the evidence to be adduced at the trial.

19. Turning now to the first issue, it is appreciated by both sides that this is basically an issue of credibility. Mr. YUEN (D.W.1) and Mr. Sumi (P.W.1) took notes of the discussions at the meeting, these being Ex. D2 and Ex. P1 respectively. The defence case is that the defendant's administrative Manager, Mr. CHU (D.W.2) also attended the meeting and took notes, Ex. D11. It is not denied that the notes of D.W.1 and D.W.2 are strikingly similar, and Mr. YUEN admitted that D.W.2 copied from his notes during the meeting. Mr. LAI argued that, because it is admitted by the plaintiff that the matter of the sole supply was discussed at the meeting, it is logical that a short sentence to that effect should appear in the notes of D.W.1, and, on that basis, the analysis of the similarities in the notes of D.W.1 and D.W.2 undertaken during a comprehensive cross-examination of those witnesses becomes a. red-herring. Keeping a short note to indicate merely that a discussion about the subject took place is one thing; to say that it was in fact so agreed in terms of the note quite another. Besides these notes is the assertion of D.W.2 that he was given a name card by P.W.1 at the same meeting, which is stapled to his notes, Ex. D11. Mr. Sumi maintained that not only was D.W.2 not present at the meeting, but he gave the name card to D.W.2 sometime in June when he was being taken to the Hill Top Country Club for a lunch meeting with Mr. YUEN. D.W.2 agreed that the address given on this name card is that in Tsuen Wan; whereas in January the defendant company was located in the Park In Commercial Centre Complex in Mong Kok. There is undisputed evidence from P.W.2 that they moved to Tsuen Wan on the 13th March. P.W.2 said that he had moved to their new name cards printed before they moved to their new premises in Tsuen Wan. Taking account of the relevant dates, I find it unlikely that P.W.1 should in January distribute his name card showing an address to which they were to move two months later. I find that the probability is that he gave his name card to D.W.2 in June. Flowing from this is the inference that in trying to link this name card with the date of the meeting, that is, 18th January, D.W.2's motive clearly was to gain support for his alleged presence at the meeting. On this basis, I take the view that in turn, the evidence of D.W.1 regarding the presence of D.W.2 at the meeting also becomes suspect.

20. Mr. LAI argued that because the trimmer capacitor was never marketed in Hong Kong before 1982, the defendant company were the first to buy it locally, and the order being large, were factors which point to the probability that the defendant was in a position to ask and could reasonably ask for exclusive supply for a limited period of seven months. The fact that the subject was mentioned by D.W.1 at the meeting is admitted by P.W.1, but what Mr. Sumi does not admit is that he agreed to it. Besides the categorical denial of Mr. Sumi, there is the evidence of P.W.2 who said that he lacks the decision making power in this respect and, under cross-examination, he was emphatic that it was impossible for one of his staff to make a sole or monopolistic arrangement which would restrict their other potential market. Regarding an informal exclusive supply arrangement, P.W.2 described it as "an unconceivable assumption" which he said that even Mr. Sumi could not have done in view of their company policy. However, I find it interesting to compare two notes of D.W.1. I refer to the last item which indicates clearly that delivery for the months of January and February was to be confirmed by the 20th January. His item No. 5 is noted in this terse manner: "Trimmer protection till July -/82." I recall what such protection meant to him. He explained that because his new product had good sales prospects, he needed a free hand in the market to make a profit. Under cross-examination he said that a sole supply agreement was of extreme importance to him to guarantee his leading position in the industry for his radio-watch. Yet, whereas something which had not been decided or agreed upon and had to be confirmed later is noted in clear terms, that which according to him had been agreed and was of such importance to him was not expressed clearly in his note. Mr. YUEN clearly is a man of considerable experience in dealing with customers, attending meetings and of course taking notes. I find it incredible that he should omit a single word "agreed" from his note in item No. 5.

21. Again, it was not disputed that the price of the trimmer capacitor was not agreed, and as seen already, the matter of delivery had yet to be confirmed. I am inclined to agree with Mr. PANG that with these matters undecided, it would be highly improbable that P.W.1 would agree to any such arrangement.

22. Lastly, the conduct of D.W.1 upon learning in June that the plaintiff were supplying other local manufacturers with the same product is relevant to this issue. He raised no immediate protest with the plaintiff, explaining that his better business sense dictated that he did not have to do so. I find it incompatible with the conduct of a party wronged by the violation of an agreement such as he claimed, just as it is with his continued acceptance of further deliveries from the plaintiff in June without any complaint regardless of the alleged breach. Yet the plaintiff admitted supplying other manufacturers over the period February - October, 1982.

23. Considering the evidence, I find that the preponderance points to the probability that Mr. Sumi did not commit his company to an exclusive supply agreement with the defendant. I find that, though it was mentioned at the meeting, P.W.2 rejected the idea forthwith.

24. On the second issue of waiver, it is not disputed that the plaintiff fell behind the delivery schedule of the trimmer capacitor in the months of March, April and May. The defendant admits that they accepted the defective or short deliveries in those months. The plaintiff company relies on the telex dated the 27th May, admittedly sent by the defendant. Mr. PANG said that the body of the telex in effect pressed the plaintiff to catch up with the shortages in delivery which the plaintiff in fact did in June and the various deliveries were accepted by the defendant. Mr. PANG submitted that, assuming that under the defendant's purchase order MRT-001/82 time was of the essence, the telex operated as waiver and by the subsequent acceptance of deliveries in June, the defendant is estopped from insisting on the original delivery schedule. He relied on Hartley v. Hymens (1920) 3 KB 475. The first two headnotes state:

"Under a contract for the sale of goods to be delivered within a certain period of time the buyer's right to require delivery within that period may be waived even after that period has expired; but it would seem that, where the contract is within s.4 of the Sale of Goods Act, 1893, the waiver must be evidenced by writing.

        Where, after the expiration of the period of delivery fixed by a contract for the sale of goods, the buyer by his letters and conduct leads the seller to entertain the belief that the contract still subsists and to act upon that belief at serious expense to himself, a new agreement may be implied that the period for delivery is extended and that delivery may take place within a reasonable time of which notice is to be given by the buyer to the seller."

25. Mr. LAI seeks to differentiate between a situation where before the delivery date the buyer leads the seller to believe that delivery could be postponed to a later date and the seller acts on that representation and does not deliver on the original date, then, the buyer cannot complain of the failure to deliver; and a situation like the instant case where the failure to deliver having already occurred, it could not be said that the plaintiff company relied on the telex for the short deliveries in the previous three months.

26. Pausing here for a moment, I think that the real point to consider first is what were the contractual rights of the defendant, if any, at the time of the admitted breach by the plaintiff in the delivery of the contract instalment quantities. This was a contract for the sale of goods to be delivered by stated instalments which, according to the invoices of the plaintiff, were to be separately paid for, and the seller made defective deliveries in respect of one or more instalments. I must consider therefore whether the breach of contract is a repudiation of the whole contract, or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated. I take into account that this is one contract and the contract quantity which was staggered over a period of months to be delivered in fixed quantities, of one article only which was required solely in the manufacture of the radio-watch which Mr. Sumi saw during the meeting. The effect of any breach in the delivery upon the contract as a whole, in my opinion, could obviously influence the defendant company's production schedule, which in turn might possibly affect the defendant's supplies of the finished product to its customers. In these circumstances, although each instalment of the contract quantity was to be paid for separately, I find that it was an implied term of the contract that any breach in the instalment delivery would amount to a repudiation of the whole contract.

27. Therefore, a partial breach by the seller being treated as a total breach, the defendant company was prima facie entitled to reject the whole of the goods. But having accepted the defective delivery in March they were nevertheless entitled to reject further goods delivered and to treat the whole contract as repudiated. It did not and accepted the first short delivery, as indeed it did the short deliveries in the following two months. In the meantime, as the telex indicates, the defendant company pressed the plaintiff to catch up with the delivery schedule. This was, in my opinion, sufficient indication by conduct that the defendant company waived its right to reject the short deliveries and to terminate the whole contract. Then, before the month of June was out, the defendant company despatched the telex exhorting the plaintiff to catch up with the delivery schedule. I construe the terms of that telex as an unambiguous announcement of its representation that it would accept delivery at a later time than that stipulated in the contract, the reference here clearly being as much to the previous deliveries as to the subsequent deliveries after the date of the telex. As it happened, the delivery for May though defective in being short was again accepted. I am convinced that by its own conduct, and subsequently confirmed in writing in the form of the telex, the defendant company had waived its right to insist that the contract be performed, in respect of those three instalments and those yet to become due, according to its original tenor.

28. Mr. LAI submitted that even if there had been a waiver, the question which faced the Court was different. It may be appropriate if I were to quote from his submission:

"It is possible to say that by the telex the defendant waived the right to treat the contract then and there terminated; or given that time is of the essence and the plaintiff was in breach of an essential condition the defendant was entitled to accept that breach and regard the contract as terminated. It is possible to argue that by the telex and by the acceptance of delivery in June the defendant had waived that right to treat the contract as having been terminated. That matter is not before the court today. Court is asked to deal with a completely different matter, i.e., claim of damages arising from the delay, and the question is whether by the telex and acceptance of the June deliveries, the defendant waived its right to claim damages arising from the delay."

29. It seems to me that learned counsel was relying on the distinction, which he termed as important, in the waiver of the right to be discharged under the contract, and the waiver of the right to claim damages for the breach of the other party. He said that these two rights are distinct and different considerations applied. He submitted that the answer to the question regarding waiver of the right to claim damages was in the negative: waiver was not possible because at the time of the telex and acceptance of the deliveries in June, the defendant did not know that he would suffer any damages. And he ended his submission on this note:

"So, judicial wisdom must have some difficulty in extracting any representation out of the telex to the effect that the defendant won't claim any damages."

30. I must confess that difficulty I have had but only in under-standing this ingenious argument, based as it is on the sole premise that there exists in the circumstances of this case such a distinction as is propounded by Mr. LAI; the problem as I see is that both these are apparently irreconcilable. Damages are the common law remedy for a breach of contract. A seller is obviously in breach if he does not deliver in accordance with the terms of the contract. A buyer is not obliged to accept late delivery under the original contract, and it cannot be said that by accepting late delivery he waives his right to claim damages on the normal basis. That, as I understand, is the position where there has been no waiver of the breach. P.W.1 said that when he sent the telex on the 27th May, he was afraid that the short deliveries by the plaintiff would cause them production problems later in June, and he thought of "rescuing the situation". He said that, apart from the production problems, there was nothing else in his mind at that time. I do not read this evidence as indicating expressly or by implication that in accepting those defective deliveries and sending that telex, there was anything said or done which would safeguard the defendant's right to claim for damages arising from the plaintiff's breach of a term of the contract. Had there been no waiver of the breach with which we are concerned, Mr. LAI would have been on firmer ground. Herein lies the fallacy of his argument in not considering that the effect of the waiver of the condition of the original contract regarding delivery is manifestly quite the opposite: there, not only the breach is waived, but also all that which flows from it as a consequence of that breach. The argument that the buyer did not know the extent of his damages at the time of the breach is equally not persuasive: the buyer knew of its commitments to its customers and fully realised that the short deliveries would cause it production problems later. On this basis, I do not see how the defendant could have been hampered in any way in making out a claim in damages had it been so minded for the breach.

31. I find that in the circumstances this submission is misconceived and does not benefit the defendant company at all.

32. On the third issue of estoppel, it is submitted by Mr. LAI that in order to rely on estoppel the plaintiff must prove that they relied on the representation and acted on it to their detriment. I have held that there was the representation both by conduct and by the telex that delivery at a later date than that stipulated in the contract would be accepted, pressing in the meantime for better performance. That surely was acted upon by the plaintiff company as is evidenced by their substantial deliveries during the month of June. In a contract of the type with which we are here concerned, I am of the opinion that this is sufficient in law to estop the defendant company from insisting on the terms of the original contract as to time.

33. With regard to the fourth issue about the exclusion clause, Mr. PANG conceded that, on the basis of the relevant authorities, he was unable to argue that the clause in note 2 excludes the plaintiff's liability in a claim by the defendant in damages. I need say no more about it.

34. On the fifth issue of whether the plaintiff's breaches aforesaid led to the loss of the defendant company arising out of the orders that were cancelled, in view of the findings I have made thus far, this issue and the next following do not arise. However, should I be wrong in my conclusions, I shall now deal with these issues very briefly.

35. D.W.1 mentioned the two contracts which were entered into in February 1982, namely, with the Advance Watch Company Limited and the other with Cheril Shaw Limited. I have already set out the details of these earlier on. D.W.1 said that all the 59 components of the radio-watch being available, it took three weeks to fill the production line, that is, to achieve full production. He explained that the trimmer capacitor was inserted into the watch roughly at the end of the second week. The main complaint seems to be that the defendant company was unable to meet its May and June deliveries in full to Advance, and its deliveries to Cheril Shaw Limited in July and August. D.W.1 said that his factory was not in full production at the end of June. This necessitates a comparison of the deliveries made by the plaintiff of its trimmer capacitor with the defendant's production schedule.

36. Starting with the first delivery of 2,000 trimmer capacitors on the 11th February and supposing that the production line started to buildup from that date onward, it would be about the 25th when the stage, would be reached for the trimmer capacitor to be implanted, and adding, another week the watches would be completed around the 5th March. Assuming always that the other 58 components were all at hand, the work force remained constant so as to maintain the cycle of production, which it did as D.W.1 maintained that no other component was in short supply and none of the work force dismissed, and that the defendant was in contact with the plaintiff as the telex indicated, pressing them for further deliveries, I do not think that the entire production would have come to a halt on the 5th March. I should have thought that production for the two weeks following the 5th March would have proceeded in expectation of further deliveries of the trimmer capacitor, thus taking to about the 19th March when it was time for this component again. Meantime, a further delivery of 13,000 had been made available on the 10th March, so that the production in March would have continued uninterrupted until the 26th. Here would occur possibly the first break in the cycle for the next delivery of the trimmer capacitor was on the 19th April when production would resume finishing about a week later by the 27th April. There was a further delivery on the 29th April which would take the defendant to about the 6th May, followed by a break of about a week until the 13th May when a further delivery of the component was made. According to the subsequent deliveries, it seems to me that the defendant's production would have proceeded uninterrupted through the rest of May, and the whole of June and beyond into July.

37. D.W.1 said that for his June production he relied on the deliveries in May. Even so, it seems to me that with the two short breaks in April and May, the probability is that by early June he would have completed the production of 33,000 radio watches corresponding with the quantity of the trimmer capacitor delivered in May. Thereafter, the short deliveries having been made up together with the scheduled quantity for June, I am of the opinion that in all probability the defendant would have achieved his projected production target during June and meet his contract obligations with his two customers.

38. It was submitted that there were other customers besides the two above-named. It was argued that had the defendant not breached his contract with either of them, he would have with some other customer. I do not propose to deal with a situation about which there is no evidence: who those other customers were or what the defendant's obligations to them were and what the delivery periods were, I do not know.

39. Although D.W.1 claimed that there was no shortage of any other component, there was evidence from P.W.1 to indicate that at the material time there was a world-wide shortage of the substance called ferrite which is used in the manufacture of antennae. This evidence was based on Mr. Sumi's own experience as his company also manufactures such antennae, and 1 do not think that his evidence in this regard was shaken in any way.

40. In the circumstances, I would have found on balance that the cancellation of the orders by the two customers was not caused by the short supply of the trimmer capacitor as alleged.

41. And now to the last issue, the calculation of the lost profits is based on the cost accounting, Ex. D10, which shows the manufacture cost of HK$21.9582 or US$3.64 per watch. Mr. PANG complained that the individual cost of the other components was not supported by relevant documents. I find nothing in the evidence, particularly in the cross-examination of Mr. YUEN, to cast any doubts on the cost charged for those other components. Mr. PANG's basic complaint is that account was not taken of the 20% wastage in the usable quantity of the trimmer capacitors, or of the free watches, that were supplied for field service. Mr. LAI worked out the calculations allowing for these items. I accept his calculation, according to which the 20% wastage in the trimmer capacitor would have pushed its cost up by fourteen cents to HK$0.84 per unit, making the manufacture cost per watch HK$22.0982 or US$3.66.

42. Cheril Shaw Limited were to be supplied 2% more for field service and Advance 1%. At this rate, the selling price to the former would be reduced from US$11.50 to US$11.27, reducing the defendant's profit to US$7.61 per watch; for Advance, the selling price would come down to US$11.38 and the defendant's profit would thus be US$7.72.

43. The amount of damages is based on the round figure of US$7.00 per watch.

44. Mr. PANG also submitted that over-head expenses of US$1.00 per watch had not been taken into account. Assuming that the defendant's production was disrupted during the material period, I would be inclined to agree with Mr. LAI that such overheads as the labour wages, machinery running costs, and depreciation could not have been saved, the only item which could possibly have been avoided being electricity which would be adequately covered in the round figure of the loss of profits now being claimed.

45. As such, I would have been inclined to fix the defendant's loss of profits for the orders cancelled by Cheril Shaw Limited and Advance Watch Company Limited at US$7.00 per watch.

46. In the event, I enter judgment for the plaintiff in the sum of HK$119,075.00 with costs and interest at the usual court rates. The defendant's counterclaim is dismissed with costs to the plaintiff.